A fortnight after President Arif Alvi reconstituted the National Finance Commission (NFC) for the purpose of negotiating a new NFC award, the Islamabad-based think tank Prime Institute held a national conference on the NFC earlier this week. One theme that ran across the two panel discussions of that moot was that provinces have been awash with funds since the 7th NFC but in terms of their performance on socio-economic outcomes, they have precious little to show for. The question is what options Islamabad really has to ensure that provinces deliver on those outcomes.
In the current set of frameworks – NFC’s arrangement and constitutional framework at large — there is no instrument available using which the federal government can influence the provincial fiscal allocations and their consequent public service delivery in the pursuit of broader national developmental objectives. Some of the proposals put forward by various stakeholders are as follows.
One set of proposals revolves around the notion that the NFC process should integrate multi-dimensional poverty index and/or the human development index to assess the impact of increased expenditure at sub-national level. A related suggestion is that the federal government should give some explicit fiscal incentive to provinces if they achieve desired socio-economic outcomes.
Another set of proposals offers stick than a carrot, where it is argued that the next NFC should include an explicit set of social outcomes that provinces will need to achieve within education, health, provision of safe drinking water etc. by the end of the tenure of the award. If the outcomes are not met halfway through the duration of the award, then transfers should be adjusted or withheld.
As much attractive these proposals of linking the NFC with socio-economic performance (inputs or outputs) the fact of the matter, according to a presentation made at Prime’s conference this week, is that these views do not enjoy consensus - not even among centralists who are the most critical of poor public service by the provinces. But that’s not the only reason why implementing these proposals would be fraught with problems.
The first question is whether the federal government has any constitutional right to meddle in affairs that lie squarely in the provincial domain? The answer is no. This then begs the question whether the PTI has the numbers to amend the constitution such that the federal government is given the instruments to push provinces towards public services delivery. The answer is not quite likely.
Which leads to the question that in the absence of any amendment what can Islamabad give on quid pro quo basis to the provinces in return for their delivery on national developmental agenda? Perhaps some additional fiscal transfers? Then again, if only Islamabad had enough money in its kitty in the first place to provide those additional transfers.
A related problem is whose data is to be believed, if and when it comes to measuring socio-economic outcomes at provincial level. This is a country which suffers from ‘unto your poverty numbers; unto mine’. The fights over data will heat up if fiscal carrots or sticks are linked to socio-economic outcomes.
An important normative question rests on the premise that fiscal transfers like the NFC is a means to distribute taxes so provincial governments can meet the needs of the people. Those supporting some kind of stick-based formula will have to justify why the people residing in a province be penalised for the failure of the provincial political leaders.
Instead of conflating forums for fiscal transfers like the NFC with forums for accountability, there is a need to strengthen forums, institutions and instruments of public accountability at provincial level. Offices to the likes of Auditor General, the FIA, NAB, and Standing Committee in provincial assembly – have to be strengthened. Lastly, the media’s limited role in mediating between provincial government and the citizens has to be fixed. (See BR Research Role of media in curbing corruption, Sep 28, 2018).
Ultimately, the voters – and not Islamabad - ought to decide the socio-economic choices of their provinces, and it is the electoral process and other institutions of accountability that should reward or penalise governments for their performance. Fixing this end of the equation will not only solve the problem of poor provincial delivery on social outcomes but also solve other problems related to Pakistan’s democracy at large.
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